Exclusive agency agreement and 5 issues could lead to a dispute

Trade agency is one type of commercial intermediary that provides significant benefits to businesses, particularly when expanding into new markets. Many companies select the exclusive agency as a commercial agency activity. The parties’ exclusive agency relationship is documented in the form of an exclusive agency agreement. However, disputes between the principal and the agent over the performance or non-performance of the agreed-upon rights and obligations may arise during the implementation of the EAA.

Through this article, BLawyers Vietnam would like to present the issues that may be disputed in the EAA in Vietnam.

1. What is an EAA?

The EAA recognizes the agreement between the principal and the agent that the agent is only assigned to buy or sell one or certain types of goods in each area, and the agent is required to buy, sell goods on his or her own behalf or provide services to the customer for remuneration.

The object of the EAA is the activity of buying, selling goods, or providing services that the exclusive agent must perform for the principal to be reimbursed. Goods and services agreed upon for sale and supply in the EAA must be goods and services that the principal is allowed to do business in accordance with the law.

As a type of commercial agent, the EAA must be in writing or other forms of similar legal value (such as telex, fax, data message, etc.). The formation of EAAs in writing or other forms to limit disputes between the parties that frequently occur when entering a verbal or behavioral agreement, as well as to assist the parties in obtaining evidence of agreement when resolving disputes that may arise if any.

2. Disputable matters in EAAs

EAA disputes are conflicts, controversies, or arguments between the agreement’s parties regarding the inappropriate performance or failure to exercise the rights and obligations provided in the agreement.

There are many causes for EAA disputes. However, the main cause is that the parties are subjective in the formation of the agreement, fail to comprehend the provisions of relevant laws, inability to predict risks, and one party intentionally conducts an inaccurate agreement that leads to a dispute.

The following are 5 issues that lead to a dispute in the EAA:

(i) Disputes relating to the entity signing the EAA

EAA partnership is a type of commercial agent agreement relationship. Therefore, both the principal and the agent entering the EAA must be enterprises, whether Vietnamese or international traders. The agent must register its business in accordance with the agreement’s business lines, and the principal must be licensed to manufacture and trade in those goods, as well as register it in the company’s business lines.

One of the common disputes in the EAA is that the individual signing the contract is incompetent. The entity is not the legal representative, is not authorized, or is the legal representative but without the authority to sign or has lawful authorization but executes the EAA further than the authorization scope.

(ii) Dispute arising from a breach of the exclusivity clause

Exclusivity is a fundamental feature that distinguishes an EAA from other agent arrangements. The EAA indicates that the exclusive agent’s scope of activity can be within a district, a province, a city, or a country. An exclusive agent may only buy or sell goods or provide services as agreed between the parties. Where the agreement specifically stipulates that the agent may only enter into an agency agreement with one principal for a certain type of good or service, the trader must comply with the provisions of the law. However, there are still disputes that arise when the agent violates the exclusivity clause.

(iii) Disputes when the goods are at risk

By law, the principal is the legal owner of the goods, therefore, when a risk of goods occurs, the principal is usually made responsible. In some situations, the agent will be made responsible if these risks occur because of the agent’s fault related to goods preservation or force majeure events (natural disaster, fire, disease). However, it is still difficult to define which party is responsible for which risk, therefore when there is a risk, it leads to a dispute. As a result, to limit disputes over this issue, the contracting party must have an agreement specifying the conditions of the risk and who is responsible.

(iv) Dispute arising from violating payment obligations

The EAA could be long-term, thus payment will be divided into several installments, and promotions and discounts will frequently occur. A dispute will arise when one party fails to pay in full and on time as agreed by the parties. To avoid this argument, the parties must provide detailed and specific conditions, as well as provisions for penalties for violations and compensation for damage (if any) if the parties are late or do not pay on time.

(v) Dispute arising when one party unilaterally terminates the agreement causing damage to the other party

The period of exclusivity shall terminate after a reasonable period but not earlier than 60 days from the date on which either party notifies the other party in writing of the termination of the agency agreement. In fact, the parties may have disputes when one party unilaterally terminates the agreement, causing damage to the other party, as well as disputes about agreement penalties, compensation for damage, and overdue payment interest. Where liability for damages arises, the parties commonly disagree on the amount of compensation to be paid to the affected party, especially when the liability to a third party is involved.

The aforementioned are the most common disputes over EAAs experienced in practice; the parties can avoid and prevent these issues if they are carefully negotiated during the EAA’s drafting.

Should you have any questions about the above contents, please revert to BLawyers Vietnam at consult@blawyersvn.com. We are more than happy to hear from you!

Date: 06 April 2022

Writer: Linh Nguyen

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